Democratic Economics

George W. Bush's sales plan for his tax cut is much the same as the one for his war on Iraq.

Use whatever the public is concerned about, even though the solution has almost nothing to do with that concern. Dick Cheney and Don Rumsfeld wanted to oust Saddam Hussein long before September 11, but 9-11 offered a great excuse even though no clear evidence linked Hussein with terrorism. Similarly, the supply-siders behind Bush have been peddling giant tax cuts on the rich for years. The current economic meltdown gives them an excuse for another round, even though tax cuts on the rich have nothing to do with reviving the economy.

Make the plan so audacious that it forces opponents to respond to it rather than to the actual problem. The debate over what to do about global terrorism was sidelined into a debate over whether America should make preemptive strikes on potentially hostile states such as Iraq. Similarly, the sheer magnitude of Bush's tax cuts has made the debate less about how to get the economy moving than whether tax cuts of this size are warranted.

Unleash the right to champion your side and demonize your opponents. Once the debate over terrorism transmuted into one over whether to attack Iraq, Bush's allies labeled anyone who disagreed with them as an unpatriotic pacifist. Now that the economic debate is about whether to go with a second installment of Bush's tax cut, the right is tarring opponents as big spenders who oppose tax cuts and want to keep the economy in neutral.

That this one-two-three punch has worked so well is less a testament to the craftiness of George W. and his Karl Rove brain than to the utter disarray of Democrats and liberals. The American public never heard how to counter the threat of terrorism other than through preemptive, unilateral warfare against such rogue nations as Iraq. And now it's hearing almost nothing about how to get the economy back on track other than Bush's $3 trillion total of tax cuts, mostly for the rich.

Now that the economy is the main issue on people's minds, here's what Dems should be saying: The economy suffers from two distinct problems, one short term and one long term. The immediate problem is too little demand for all the goods and services we can produce. Factories are running at only 73 percent capacity, the lowest in two decades; offices are empty, equipment is idle, unemployment is rising. We've lost more than 2.6 million private-sector jobs in the last two years.

In the short term, the only solution is to ratchet up demand. How? A tax break to companies won't work. Businesses won't invest in additional factories or equipment until they know there's a market for additional production. A tax break for the wealthy is bonkers. The rich already spend everything they want to spend. After all, that's the definition of being rich.

The only way to boost demand is to put more money in more people's wallets through a tax cut (a refundable credit or a temporary cut in payroll taxes, or both) for working people of modest incomes, totaling more than $1,500 per family, both this year and next. Add in an emergency $50 billion bailout of the states. Most are now cutting vital social services and school aid because they're broke.

But don't stop there. The long-term challenge is to boost the rate of economic growth in order to pay for the giant boomer generation's retirement, starting less than a decade from now, and for the global responsibilities that come with being the last remaining superpower on Earth. How? Contrary to Bush's supply-siders, cutting taxes on the wealthy won't work because the rich invest the additional money anyplace around the world that they can get the best return on it. In other words, their investments are as likely to trickle out as to trickle down.

The only way to boost long-term growth is by investing in assets that will uniquely build American productivity and thereby attract global capital: our people (their education, training and health) and our infrastructure (transportation, water and sewers, and sustainable energy supplies that won't emit so much carbon dioxide into the atmosphere or depend on foreign supplies). Instead of trickle-down economics, call this "bubble-up economics."

Most Americans are more concerned about the economy than about terrorism. With Congress in Republican hands, Bush probably will get enough of a tax cut to claim victory. But his plan won't revive the economy and it won't deal with its long-term challenges. Democrats can win back the White House if they focus on what really needs to be done. Their one-two-three punch has to (1) provide a real stimulus for working people's wallets, (2) offer a bubble-up of public investment and (3) have the courage to call Bush's plan what it is -- a sop to the rich at a time in our nation's history when the top 1 percent already claims a higher portion of national income and wealth than at any time in the last 80 years.

About the Author

Robert B. Reich, a co-founder of The American Prospect, is a Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. His website can be found here and his blog can be found here.